International bussiness the challenge of global competition 11e chapter 08

chapter eight Economic and Socioeconomic Forces McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc All rights reserved Learning Objectives  State the purpose of economic analysis  Identify different categories based on levels of national economic development and the common characteristics of developing nations  Recognize the economic and socioeconomic dimensions of the economy and different indicators used to assess them  Discuss the importance of a nation’s consumption patterns and the significance of purchasing power parity 8-3 Learning Objectives  Discuss the new definition of economic development, which includes more than economic growth  Explain the degree to which labor costs can vary from country to country  Discuss the significance for businesspeople of the large foreign debts of some nations 8-4 International Economic Analyses (Table 8.1)  Economic Analysis  When a firm enters overseas markets, economic analyses become more complex 8-5 International Economic Analysis  Sources for Economic Information  The Commercial officers in embassies  The World Bank  The United Nations  The International Monetary Fund  The Organization for Economic Cooperation and Development 8-6 Levels of Economic Development • Developed – A classification for all industrialized nations, which are the most technically developed • Developing – A classification for lower income nations, which are less technically developed 8-7 Levels of Economic Development • Newly industrialized economies (NIEs) – The fast-growing upper-middle-income and high income economies of South Korea, Taiwan, Hong Kong, and Singapore • Newly industrializing countries (NICs) – The four Asian Tigers and the middleincome economies such as Brazil, Mexico, Malaysia, Chile, and Thailand 8-8 Dimensions of the Economy  Important Economic Indicators  Gross National Income (GNI)  GNI/capita  Income Distribution  Private consumption  Unit labor costs  Exchange rates  Inflation rates  Interest rates 8-9 Dimensions of the Economy • Gross National Income (GNI) – The measure of the income generated by a nation’s residents from international and domestic activity – Preferred over GDP • GNI/Capita – Used to compare countries with respect to the well-being of their citizens and to assess market or investment potential 8-10 Dimensions of the Economy  Unit labor costs  Total direct labor costs divided by units produced  Countries with slower-rising unit labor costs attract management’s attention 8-16 Dimensions of the Economy • Reasons for relative changes in labor costs – Compensation – Productivity – Exchange rates • International firms must keep close watch on labor rates around the world 8-17 Dimensions of the Economy • Large international debts of middle- and low-income nations affect multinational firms – When foreign exchange must be used for loan repayment, import of components used in local production is reduced – Local industries must manufacture these components or production must stop 8-18 Major International Debtors 8-19 Socioeconomic Dimensions • Total Population – Most general indicator of potential market size – Population size, used alone, is not good indicator of economic strength and market potential 8-20 Socioeconomic Dimensions • Age Distribution – Developing countries have more youthful populations than industrial countries – Birthrates decreasing worldwide – Population of developing countries accounts for over three-quarters of world’s population 8-21 Population Growth 8-22 Forces Reducing Birthrates • Government supported family planning programs • Improved levels of health, education along with enhanced status for women • More even distribution of income • Greater degree of urbanization 8-23 Concern: Birthrate Decline • Concern in Developed Nations: Europe • An increasing number of young Europeans not marrying • Marriages are later, with fewer children • By 2025, the present percent unemployment rate in the EU will be replaced by a shortage of workers 8-24 Concern: Birthrate Decline • Concern in Developed Nations: Japan – By 2025, Japan’s population aged 65 and older will make up 26.8 percent of total population – By 2025, Japan will have twice as many old people as children 8-25 Socioeconomic Dimensions • Population Density – A measure of the number of inhabitants per area unit – product distribution and communications simpler and cheaper in densely populated countries 8-26 Socioeconomic Dimensions • Population Distribution – A measure of how the inhabitants are distributed over a nation’s area – Changing population distribution: ruralto-urban shift 8-27 Rural-to-Urban Shift (Table 8.8) 8-28 Socioeconomic Dimensions • Increase in the number of working women – May require marketers to alter promotional mix – Results in larger family incomes – Results in a greater market for convenience goods 8-29 Population Distribution 8-30 ... complex 8-5 International Economic Analysis  Sources for Economic Information  The Commercial officers in embassies  The World Bank  The United Nations  The International Monetary Fund  The Organization... socioeconomic dimensions of the economy and different indicators used to assess them  Discuss the importance of a nation’s consumption patterns and the significance of purchasing power parity... State the purpose of economic analysis  Identify different categories based on levels of national economic development and the common characteristics of developing nations  Recognize the economic